Question

Doisneau 20​-year bonds have an annual coupon interest of 14 ​percent, make interest payments on a semiannual​ basis, and have a ​$1 000 par value. If the bonds are trading with a​ market's required yield to maturity of 12 ​percent, are these premium or discount​ bonds? Explain your answer. What is the price of the​ bonds?

a. If the bonds are trading with a yield to maturity of 12​%, then ​ (Select the best choice​ below.)

A. the bonds should be selling at a premium because the​ bond's coupon rate is greater than the yield to maturity of similar bonds.

B. the bonds should be selling at a discount because the​ bond's coupon rate is less than the yield to maturity of similar bonds.

C. there is not enough information to judge the value of the bonds.

D. the bonds should be selling at par because the​ bond's coupon rate is equal to the yield to maturity of similar bonds.

Answer 1